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HOAs Taking Advantage of Minnesota Lenders?

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Kevin Dobie
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)

Following a foreclosure, lenders and servicers are routinely asked to foot the bill for the unpaid homeowners association (HOA) dues. In addition to the regular monthly dues, often the bill comes riddled with line items for unit repairs, special assessments, attorneys’ fees, late charges, and more. When the bill threatens to delay an REO closing, the lender must decide quickly whether to pay the bill or challenge the association. Fortunately, Minnesota law provides a clear outline of what charges must be paid — with one significant caveat.

In Minnesota, a lender foreclosing a first mortgage must pay the unpaid dues for common expenses which became due, without acceleration, during the six months immediately preceding the end of the owner’s period of redemption. Unfortunately, a few unscrupulous or ill-informed HOAs add all of the unpaid association dues, late charges, and attorneys’ fees to their bills regardless of their timing. The lender is not responsible for any assessments that became due prior to the six-month lookback period.

While most HOAs charge only for the dues incurred during the six-month lookback period, these associations almost always include late charges and attorneys’ fees. The lender is not responsible for late charges and attorneys’ fees incurred during the six-month lookback period; the statute specifically omits these amounts in the list of allowed charges. Often, these unlawful charges are paid by servicers who are too busy to challenge every line item. Paying the unlawful charges is a mistake, and although they are usually small amounts, eliminating the unlawful charges can add up to significant savings.

Moreover, a very small number of associations will even wait to levy a special assessment until the six-month lookback period commences. The significant caveat to the otherwise clearly written statute is whether the lender is responsible for special assessment charges that were incurred prior to the six-month lookback period. This ambiguity is a result of the statutory language “which became due.”

HOA counsel contend that a lender is in a better position to pay these assessments, but these attorneys forget that their clients have recourse beyond lenders to recover the amounts. The association has every right to pursue collection against the unit owner; that is, the homeowner who was responsible for the dues and assessments at the time that the HOA incurred the charges for services/materials/repairs provided by third-party vendors (specifically, at the time that the invoice from the vendor to the HOA became due). Challenging these assessments may require examining the HOA meeting minutes, but this research can also result in significant savings.

Most of the time these disputes with an HOA can be resolved with a single letter from the lender’s attorney and a redlined association invoice. On occasion, a lawsuit may be required. If the matter requires litigation, the good news is that a court can award reasonable attorneys’ fees to the prevailing party, and if the association willfully refused to remove an unlawful charge, the court may award punitive damages.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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